“Standing” is a legal term of art that refers to a party’s ability to bring a cause of action, to intercede in one or to appeal the court’s judgment. To prove appellate standing in a bankruptcy proceeding, a party must show that “he was directly and adversely affected pecuniarily by the order of the bankruptcy court.” Although it may seem at first blush that a debtor in a bankruptcy proceeding would necessarily be directly and adversely affected by the final judgment of a bankruptcy court in an adversary proceeding, this is not always the case as demonstrated by a recent decision out of the Fifth Circuit.
In the case of In re Prince, Clovis Prince filed for Chapter 7 relief individually, on behalf of his management company and his consulting company. He sought to have the three cases administered jointly, and his motion was granted. The Chapter 7 trustee filed a complaint to avoid fraudulent transfers and for turnover against Prince as trustee of a trust into which he had allegedly transferred several valuable properties. The Chapter 7 trustee also contended that the transfers were made while the debtors were insolvent to hinder, delay and defraud creditors. Not only did the bankruptcy court agree that the transfers were fraudulent and ordered turnover, but Prince was also convicted of bank fraud, bankruptcy fraud, money laundering and perjury in a separate criminal proceeding.
Prince appealed the bankruptcy court’s judgment. Importantly, he did not appeal the judgment as trustee, but instead filed the appeal in his individual capacity. The Chapter 7 trustee moved to dismiss Prince’s appeal for lack of standing, arguing that Prince was not sued in his individual capacity but was sued in his capacity as trustee. The court also noted that Prince, who filed the appeal pro se, lacked standing because a non-attorney trustee may not represent the trust in federal courts.
The takeaway from Prince is twofold. For debtors, standing to appeal a bankruptcy court judgment is not established simply because of the party’s status as the debtor. For creditors, it is important to understand the burden that a debtor must satisfy to establish standing. When available, moving to procedurally dismiss an appeal based on standing is a far less expensive route than litigating the appeal on its merits.